All doom and gloom, so get real
Stockbrokers are naturally optimistic about the future. It is an admirable quality. But it is also an expensive conditioning.
Stockbrokers are naturally optimistic about the future. It is an admirable quality. But it is also an expensive conditioning. We are wired for a bull market, not a bear market. We are bad at saying sell, bad at predicting a fall, bad at advising people to cut and run, bad at taking losses. Instead we constantly hold out the hope that everything is about to turn on a sixpence in the very next instance. Lucky for us the bear markets are short. But of course we are not alone. It seems that at the top and bottom of a market we all enter a cloud. A cloud that renders completely random everything that is certain, rational, logical, fundamental or predictable. We are in that cloud at the moment. The only people who appear to offer any comfort are those who adopt such a long-term perspective that they can declare it will be all right in the end without any threat to their reputation. Well, whoopee-do. Generals on the hill. How about getting down into the valley of death with the rest of us and making a few predictions? So here's one. The results season will not be good. How can it be? We have already had profit warnings from NAB, ANZ, Suncorp-Metway, Aristocrat Leisure, GPT, Mirvac, Valad Property Group, Ten Network, Just Group, Futuris, Noni B, Boom Logistics, Alumina, Newcrest, Fosters, Clive Peters, Commander Communications, Perpetual Trustees and IAG. The issue this results season is not going to be 2008, but 2009. According to one broker, the average earnings growth expectation for 2009 is a 27 per cent jump in earnings. But top-down logic tells us that 27 per cent earnings growth simply isn't going to happen, and isn't happening, in an environment of high interest rates, high oil prices, slowing economic growth, a threatened property market and a credit crisis that is set to get worse before it gets better.We are, after all, already in fiscal 2009. The fact is that in any cycle forecasts lag behind reality - and it is already clear that analysts have only just begun to downgrade. It obviously takes time and as we run into this results season there are a variety of drivers that are set to test us. A strong Australian dollar (though it's eased a little over the past few days) will not have helped any of the following: PaperlinX, Amcor, OneSteel, Pacifica, James Hardie, CSR, Billabong, CSL, Aristocrat Leisure, ResMed, Fosters and Iluka, to name a few. Another area of concern after the Suncorp-Metway profit warning yesterday will be wealth management businesses. Wealth management is, unsurprisingly, struggling and you can expect a Suncorp-Metway-like performance from other wealth management businesses such as the banks, the fund managers and the financial services industries. All have the odds badly stacked against them. Then there are the "stockmarket stocks". These are the stocks that thrive in a buoyant stockmarket, that live off financial confidence and activity. They include the investment banks, the ASX, Computershare, brokers, service providers. Then we have the property trusts and the infrastructure and utility stocks. We know they are in trouble, but the market has still to come to terms with the fact that they have lost their "bond-like" status. A dose of cut dividend expectations could still wreak havoc. So you can punt your heart out going into this results season if you like, and I will merrily wave at you in your soft-top Porsche when you get it right. But, with the expectations of a wife and family on my shoulders I feel this is a time for preservation, not fantasy. I'll be buying the market when I see it going up again. But not before, and not before the results season. FOOTNOTE: What the market will reward this results season is certainty. Any company that can confirm the 2009 outlook will be singled out and rewarded. Just as those that don't will be punished. But even then, it won't be that exciting. In the wrong market, good news is OK, OK news is bad and bad news will see its messenger taken out the back and shot.
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